If spending increased by $100, and the GDP increased $400 as a result, the MPC must be:
A) 0.70
B) 0.75
C) 4
D) 2

Name: If spending increased by $100, and the GDP increased $400 as a result, the MPC must be: A) 0.70 B) 0.75 C) 4 D) 2
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Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC). Given that the GDP increased by $400 due to a $100 increase in spending, the multiplier is 4. Solving 1/(1-MPC) = 4 gives MPC = 0.75.

If Spending Increased by $100, and the GDP Increased $400